Funds to seize Argentine assets held in U.S.

July 20, 2012|Reuters

* Hedge funds that sued over default poised to seize assets

* ADSs they will seize worth about $23 mln on market

* Order issued by U.S. district court in Manhattan

By Hilary Burke

BUENOS AIRES, July 20 (Reuters) - Hedge funds that sued overArgentina's massive sovereign debt default in 2002 will gettheir hands on some compensation for what is believed to be thefirst time in 10 years, federal court documents in New Yorkshowed.

Two "holdout" funds, NML Capital Ltd and EM Ltd, have wonfinal judgments totaling several billion dollars during a decadeof litigation over Argentina's default. But neither of them hadbeen able to seize Argentine funds in the United States sincesovereign immunity laws protect most assets of foreigncountries.

The U.S. district court in Manhattan ordered late onThursday that the U.S. Marshal's office execute an order toseize Argentine state assets, including cash deposits held by BHOption Trust and 9.09 million American depositary shares (ADS),each of which represents 10 Class D shares of Argentine bankBanco Hipotecario SA.

The market value of the ADSs, as of Thursday's close,totaled just over $23 million at the official exchange rate forthe Argentine peso. The ADSs will be publiclyauctioned and the proceeds divided between NML Capital and EM.

Although the value of the assets to be seized represents asmall fraction of what Argentina owes the hedge funds, it is avictory for the funds because it allows them to take control ofArgentine assets after a decade-long effort. But it does notnecessarily mean more such orders will follow, because eachattempt to seize assets is weighed on its individual merits.

Lawyers and officials for the hedge funds and Argentina werenot immediately available to comment on the court orders.

Argentina, Latin America's No. 3 economy, defaulted on some$100 billion of sovereign debt at the height of a 2001-02economic and political crisis - the biggest sovereign debtdefault in history.

The government restructured about 92 percent of thedefaulted bonds in debt swaps carried out in 2005 and 2010. Butholdout creditors like EM and NML Capital rejected the swaps andsued instead to recover the full value of the defaulted bonds.

Argentine officials shun what they call the "vulture funds"that buy distressed debt cheaply and then use the courts to tryto force debtors to repay them in full. Argentina calls fundslike EM and NML vulture funds.

Thursday's court documents showed that EM -- which iscontrolled by investor Kenneth Dart -- won a final judgment in2003 totaling $724.8 million plus accrued interest of $74.4million through May 22, 2012.

Meanwhile, NML Capital, which is part of New York-basedElliott Management Corp, won a final judgment in 2006 for $284.2million with accrued interest of $85.3 million.

On Monday, a U.S. appeals court in New York will hear oralarguments over whether a district court judge acted correctlywhen he ruled that Argentina may not make payments tobondholders who accepted the 2005 and 2010 debt swaps before itsatisfies all obligations to hedge funds and others thatdeclined to take part in the exchange offers.